Kathmandu. The average interest rate on loans taken from banks and financial institutions has come down to 6.90 percent. Although the fall in interest rates to a historic point has brought relief to borrowers, experts have expressed concern that the overall economy is pushing towards a ‘liquidity trap’. <\/p>\n
A few years ago, the same interest rate reached more than 13 percent. The data shows that interest rates, which have been continuously falling in recent years, are now at historic lows. <\/p>\n
According to the latest data of the Nepal Rastra Bank, the deposit in the banking system has reached Rs 78.83 trillion and the loan has reached Rs 58.68 trillion. The loan-deposit ratio is now 73.73 percent instead of a maximum of 90 percent. This shows liquidity of more than Rs 12.5 trillion. <\/p>\n
In this way, due to excess liquidity, on the one hand, the interest rate of deposits is decreasing, and on the other hand, the interest rate of loans is also decreasing. <\/p>\n
However, even if the average rate has decreased, not all borrowers will be able to get loans at the same rate. The interest rate varies depending on the bank and the type of loan, so in practice the borrower may have to pay. <\/p>\n
According to experts, the trend of the last two decades shows that the cycle of interest rates sometimes low and sometimes high has been repeated. But the situation is different now \u2013 the interest rates of both deposits and loans have fallen drastically at the same time. <\/p>\n
Although the reduction in interest rates has made it easier for borrowers, there are some downsides to it. Depositors’ income has decreased and the risk of investment going into unproductive areas has increased. Experts say that there is still a possibility of capital outflow from the border areas even if the interest rate is only slightly higher in the neighboring countries. <\/p>\n
Although the real interest rate is positive due to low inflation, the demand for credit has not increased as expected. A large amount of money has accumulated in the banking system due to the slowdown in credit flow while deposits are increasing. This situation has been described by many as a “liquidity trap”. <\/p>\n
This means that even if there is enough money in the bank, it is not possible to keep the economy running only by reducing interest rates. In such a situation, the instruments of monetary policy will not be effective and the government’s fiscal policy should play a role in running the economy. <\/p>\n
The analysis states that the demand for loans has not increased due to weak overall demand in the market, private sector investment has not been expanded and consumption trend has declined. In such a situation, they conclude that it will be difficult for the economy to run unless government spending is increased and demand is created. <\/p>\n
Banks have been continuously reducing the interest rate on deposits as there is more liquidity in the banking system. As the interest rate of deposits decreases, the base rate of the loan also decreases. The impact of this has also been seen on the deposit structure. As the attraction of fixed deposits is declining, people have shifted to savings accounts. In the last one year, the share of fixed deposits has decreased significantly, while the share of savings and current accounts has increased. <\/p>\n
Although the target of credit expansion in the current fiscal year has been high, it seems unlikely that the target will be met looking at the progress so far. The main reasons for this are weak investment environment, lack of enthusiasm in the private sector and decrease in market demand. <\/p>\n
Overall, interest rates have fallen to historic lows, but the failure to increase economic activity as expected has become a new challenge for the economy.<\/p>\n","protected":false},"excerpt":{"rendered":"
Kathmandu. The average interest rate on loans taken from banks and financial institutions has come down to 6.90 percent. Although the fall in interest rates to a historic point has brought relief to borrowers, experts have expressed concern that the overall economy is pushing towards a ‘liquidity trap’. A few years ago, the same interest […]<\/p>\n","protected":false},"author":16,"featured_media":238411,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45117,45031,45060,45159],"tags":[],"class_list":["post-295871","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bank-finance-en","category-banner-news-en","category-corporate-en","category-news-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/295871","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/comments?post=295871"}],"version-history":[{"count":1,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/295871\/revisions"}],"predecessor-version":[{"id":295872,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/295871\/revisions\/295872"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/238411"}],"wp:attachment":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=295871"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=295871"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=295871"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}